Relations with Iceland turn cold after savings accounts troubles

17 October 2008 / by Rachael Stiles
International money transfers between Iceland and Britain have all but frozen up and Sedlabanki, Iceland's central bank, says that the UK's handling of the savings accounts situation is to blame.

Sedlabanki has guaranteed all foreign cash transfers by routing them through the central bank's own accounts, amid fears that money sent to Iceland will not be transferred to the correct account, leaving the foreign bank liable.

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In a statement, Sedlabanki said that "In some instances, foreign banks that are parties to payment transactions do not execute normal and appropriate orders for payment to Icelandic banks for fear that such transactions will end in a moratorium on payment on the receiving end, or for fear that the funds involved will not be transferred to the appropriate party."

The Icelandic Government has said that money transfers with other countries are problematic, but those with the UK are "by far most difficult" and remain at a standstill. It also said that this situation is "directly attributable to the extremely harmful actions taken by the British authorities".

The Icelandic Prime Minister, Geir Haarde, reacted with anger when Gordon Brown used anti-terrorist laws to freeze at least £4billion of Icelandic assets in the UK, after the Icelandic Government said it would be unable to compensate British savers with money locked in the savings accounts of collapsed Icealandic banks, such as Icesave, the UK online savings accounts arm of Landsbanki.

The Bank of England has offered the Icelandic government a £100million loan so that it can honour its compensation guarantee to UK savers, but Mr Haarde has said that he will be appointing a UK law firm to sue the British government for exacerbating Iceland's problems.

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